LACERS’ Investment Return


Tom Moutes

Retirees Update

By Tom Moutes, RLACEI Legislative Director

One of the most important pieces of information LACERS provides each fiscal year is how its investments fared. For fiscal year 2021-22, it appears the news is not good.

At the June 28 LACERS Board meeting, it was reported that the unaudited return to that date was minus-5.76 percent, and that would be the first negative return year since 2008-09. While the fiscal year did not end until June 30, the market did not perform well the last two days to close out the year. So, we can assume the return will be negative when the audited return numbers come out in the next month or two. LACERS assumes it will make 7 percent per year on average on its investments, so a return of approximately minus-6 percent is really a loss of 13 percent — the 7 percent assumed rate not achieved plus the actual negative return.

So, What Does This Mean?

In and of itself, the investment return in any given fiscal year doesn’t mean much – unless it is hugely positive or negative.

For the fiscal year 2020-21, LACERS reported investment earnings of 29.29 percent (gross of fees) for one of the best investment years in its history. This hugely positive year likely finally finished making up for the last recession. So, the good news is that the portfolio finally made up that ground. The bad news is that we may be staring at another recession – or at least a prolonged market pullback – and we are starting out with a return that, in essence, is approximately minus 13 percent.

Before the last recession, LACERS was funded at 79.8 percent for combined health and retirement based on the actuarial value of assets at the end of fiscal year 2006-07. As of the end of the 2020-21 fiscal year, LACERS was funded at 74.6 percent — or approximately 5 percent lower than leading into the 2008-09 recession.

It will be interesting to see what the coming fiscal years bring in terms of investment returns. One down year by itself does not mean much, but we hope LACERS’ asset allocation will fare better as we move forward